Financial and Managerial Accounting (Looseleaf) (Custom Package)
Financial and Managerial Accounting (Looseleaf) (Custom Package)
6th Edition
ISBN: 9781259754883
Author: Wild
Publisher: MCG
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Chapter 3, Problem 8PSA

1.

To determine

To prepare:

Income statement, statement of retained earnings and classified balance sheet.

1.

Expert Solution
Check Mark

Explanation of Solution

Prepare income statement.

T Company
Income Statement
For Year Ended December 31, 2015
Particulars Amount
($)
Amount
($)
Revenue:    
Service revenue 111,000  
Other revenue 4,100  
Total Revenue   115,100
Expenses:    
Insurance expense 10,000  
Wages expense 32,000  
Interest expense 5,100  
Supplies expense 7,400  
Rent expenses 13,400  
Repairs expense 8,900  
Telephone expense 3,200  
Depreciation expense-Building 11,000  
Depreciation expense-Equipment 6,000  
Postage expense 4,200  
Property taxes expense 5,000  
Utilities expense 4,600  
Total Expense   110,800
Net income   4,300

Net income is $4,300.

Working notes:

Calculation of service revenue,

Servicerevenue=Professionalfeesearned+Rentearned=$97,000+$14,000=$111,000

Calculation of other revenue,

Otherrevenue=Dividendearned+Interestearned=$2,000+$2,100=$4,100

Prepare statement of retained earnings:

T Company
Statement of Retained Earnings
For Year Ended December 31, 2015
Particulars Amount
($)
Retained earnings, December 1, 2015 121,400
Plus: Net income 4,300
  125,700
Less: Dividends (13,000)
Retained earnings, December 31, 2015 112,700

Therefore, retained earnings are $112,700.

Prepare classified balance sheet:

T Company
Balance Sheet
As on December 31, 2015
Particulars Amount
($)
Amount
($)
Assets    
Current assets    
Cash 5,000  
Short-term Investment 23,000  
Supplies 8,100  
Prepaid Insurance 7,000 43,100
Property assets    
Equipment 40,000  
Less: Accumulated depreciation (20,000) 20,000
Building 150,000  
Less: Accumulated depreciation (50,000) 100,000
Land   55,000
Total assets   218,100
Liabilities    
Current liabilities    
Accounts Payable 16,500  
Rent Payable 3,500  
Interest Payable 2,500  
Wages payable 2,500  
Property Taxes payable 900  
Unearned professional fees 7,500 33,400
Long-term liabilities    
Long-term notes payable   67,000
Total liabilities    
Stockholder’s equity    
Common Stock 5,000  
Retained earnings 112,700  
Total stockholders’ equity   117,700
Total liabilities and stockholder’s equity   218,100

Balance sheet total is $218,100.

2.

To determine

To prepare:

Journal entries to close the temporary accounts.

2.

Expert Solution
Check Mark

Explanation of Solution

Transfer service revenue to income summary account for closing.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 31 Service Revenue   115,100  
  Income Summary     115,100
  (Being service revenue transfer to income summary account)      

• Service revenue is revenue account. Since, revenue is transferred to income summary account, it reduces revenue. Hence, debit income summary account.

• Income summary is a temporary account. Since, it is used for closing revenue account. Hence, credit income summary account.

Transfer expenses to income summary account for closing.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 31 Income summary   110,800  
  Insurance Expense     10,000
  Wages Expense     32,000
  Supplies Expense     7,400
  Rent expenses     13,400
  Repairs Expense     8,900
  Telephone Expense     3,200
  Depreciation Expense-Equipment     6,000
  Depreciation Expense-Building     11,000
  Postage Expense     4,200
  Property taxes Expense     5,000
  Utilities Expense     4,600
  Interest Expense     5,100
  (Being all expenses transfer to income summary account)      

• Income summary is a temporary account. Since, it is used for closing expense account. Hence, debit income summary account.

• Income summary account is used to transfer all expenses. Hence, credit all expenses.

Income summary transfer to retained earnings account for closing.

Date Account Title and Explanation Post ref Debit
($)
Credit
($)
Dec 31 Income Summary   4,300  
  Retained Earning     4,300
  (Being net income transfer to retained earnings)      

• Income summary is a temporary account. Since, it is used for transferring net income summary to retained account. Hence, debit income summary account.

• Retained earnings come under stockholder’s equity. Since, retained earning has increased. Hence, credit retained earning account.

Dividend paid to shareholder.

Date Particulars Post ref Debit
($)
Credit
($)
Dec 31 Retained Earnings   13,000  
  Dividend     13,000
  (Being dividend distributed)      

• Retained earnings come under stockholder’s equity. Since, retained earnings is used to pay dividend, retained earnings has decreased. Hence, debit retained earnings account.

• Dividend is distributed from profit. Since it reduce retained earnings. Hence, credit dividend account.

3.

a.

To determine

Return on assets ratio.

3.

a.

Expert Solution
Check Mark

Explanation of Solution

Net income is $4,300 (refer part 1).

Formula to determine return on asset ratio:

Returnonasset=NetincomeTotalaverageasset

Substitute $4,300 for net income and $209,050 for total average asset (Working Note) in the above formula,

Returnonasset=$4,300$209,050=0.021

Working Note:

Compute the total average asset,

Totalaverageasset=Openingtotalasset+Closingtotalasset2=$200,000+$218,1002=$209,050

Hence, return on asset of the company is 0.021.

b.

To determine

Debt ratio.

b.

Expert Solution
Check Mark

Explanation of Solution

Calculated info (refer part 1),

Debt capital is $67,000.

Total amount of assets is $218,000.

Debt ratio

Formula to determine debt ratio:

Debtratio=TotaldebtcapitalTotalassets

Substitute $67,000 for total debt capital and $218,100 for current assets in the above formula,

Debtratio=$67,000$218,100=0.31

Hence, debt ratio of the company is 0.31.

c.

To determine

Profit margin ratio.

c.

Expert Solution
Check Mark

Explanation of Solution

Calculated info (refer part 1),

Total amount of revenue is 115,100.

Net income is $4,300.

Profit margin ratio

Formula to determine profit margin ratio:

Profitmargin=NetincomeServicerevenue×100

Substitute $4,300 for net income and $115,100 for service revenue in the above formula,

Profitmargin=$4,300$115,100×100=3.736%

Hence, profit margin of the company is 3.736%.

d.

To determine

Current ratio.

d.

Expert Solution
Check Mark

Explanation of Solution

Calculated info (refer part 1),

Total amount of current assets is $43,100.

Total amount of current liabilities is $33,400.

Current ratio

Formula to determine current ratio,

Currentratio=CurrentassetsCurrentliabilities

Substitute $43,100 for current assets, and $33,400 for current liabilities in the above formula,

Currentratio=$43,100$33,400=1.29

Hence, current ratio of the company is 1.29.

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Chapter 3 Solutions

Financial and Managerial Accounting (Looseleaf) (Custom Package)

Ch. 3 - Prob. 6DQCh. 3 - Prob. 7DQCh. 3 - Prob. 8DQCh. 3 - A If a company initially records prepaid expenses...Ch. 3 - Prob. 10DQCh. 3 - Prob. 11DQCh. 3 - Prob. 12DQCh. 3 - Prob. 13DQCh. 3 - Prob. 14DQCh. 3 - Prob. 15DQCh. 3 - Prob. 16DQCh. 3 - Prob. 17DQCh. 3 - Prob. 18DQCh. 3 - Prob. 19DQCh. 3 - Prob. 20DQCh. 3 - Prob. 21DQCh. 3 - Prob. 22DQCh. 3 - Prob. 23DQCh. 3 - Prob. 24DQCh. 3 - Prob. 25DQCh. 3 - Prob. 26DQCh. 3 - Prob. 27DQCh. 3 - Prob. 28DQCh. 3 - Prob. 29DQCh. 3 - Periodic reporting C1 Choose from the following...Ch. 3 - Computing accrual and cash income C1 In its first...Ch. 3 - Identifying accounting adjustments P1 Classify the...Ch. 3 - Prob. 4QSCh. 3 - Prepaid (deferred) expenses adjustments P1 For...Ch. 3 - Prepaid (deferred) expense adjustments P1 For each...Ch. 3 - Prob. 7QSCh. 3 - Prob. 8QSCh. 3 - Prob. 9QSCh. 3 - Prob. 10QSCh. 3 - Prob. 11QSCh. 3 - Prob. 12QSCh. 3 - Prob. 13QSCh. 3 - Prob. 14QSCh. 3 - Recording and analyzing adjusting entries P1...Ch. 3 - Prob. 16QSCh. 3 - Prob. 17QSCh. 3 - Prob. 18QSCh. 3 - Prob. 19QSCh. 3 - A preparing adjusting entries P4 Cal Consulting...Ch. 3 - Preparing closing entries from the ledger P4 The...Ch. 3 - Identifying post-closing accounts P5 Identify...Ch. 3 - identifying the accounting cycle C2 List the...Ch. 3 - Classifying balance sheet items C3 The following...Ch. 3 - Identifying current accounts and computing the...Ch. 3 - Prob. 26QSCh. 3 - Prob. 27QSCh. 3 - Prob. 1ECh. 3 - Exercise 3-2 Adjusting and paying accrued expenses...Ch. 3 - Prob. 3ECh. 3 - Prob. 4ECh. 3 - Prob. 5ECh. 3 - Prob. 6ECh. 3 - Prob. 7ECh. 3 - Prob. 8ECh. 3 - Prob. 9ECh. 3 - Prob. 10ECh. 3 - Prob. 11ECh. 3 - Prob. 12ECh. 3 - Prob. 13ECh. 3 - Prob. 14ECh. 3 - Prob. 15ECh. 3 - Prob. 1PSACh. 3 - Prob. 2PSACh. 3 - Prob. 3PSACh. 3 - Prob. 4PSACh. 3 - Prob. 5PSACh. 3 - Prob. 6PSACh. 3 - Prob. 7PSACh. 3 - Prob. 8PSACh. 3 - Prob. 1PSBCh. 3 - Prob. 2PSBCh. 3 - Prob. 3PSBCh. 3 - Prob. 4PSBCh. 3 - Prob. 5PSBCh. 3 - Prob. 6PSBCh. 3 - Prob. 7PSBCh. 3 - Prob. 8PSBCh. 3 - Prob. 3SPCh. 3 - Prob. 1GLPCh. 3 - Prob. 2GLPCh. 3 - Prob. 3GLPCh. 3 - Prob. 4GLPCh. 3 - Prob. 5GLPCh. 3 - Prob. 6GLPCh. 3 - Prob. 1BTNCh. 3 - Prob. 2BTNCh. 3 - Prob. 3BTNCh. 3 - Prob. 4BTNCh. 3 - Prob. 5BTNCh. 3 - Prob. 6BTNCh. 3 - Prob. 7BTNCh. 3 - Prob. 8BTNCh. 3 - Prob. 9BTN
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